The Top 5 Reasons You Need A Budget

What is your net worth?

If someone asks me that question and I feel brave enough to answer, I can do so in mere seconds. It’s because I’m using Mint’s free budgeting website and android app. Mint tracks all of my financial accounts, including investments and student loans (ouch).

But why would an attractive person like you need to know what’s going on with your cash? Here are five reasons.

5. Anxiety Reduction

Ignorance is not bliss in the financial world. It doesn’t feel good to be in some unknown level of financial peril. Like with everything else, ignoring financial problems ensures that they remain unsolved and this knowledge will eat away at you! If you know your finances inside and out, you can come up with targeted, effective ways to get out of debt and even save up for a kindle or to take one of the 500 greatest trips.

4. Control

Anxiety is reduced with a budget because you have greater control over your cash flows. Unnecessary impulsive purchases will be exposed while expected needed funds (a new car when ol’ trusty goes down) will be there when you need them. Many non-budgeters think that budgets restrict spending, but in practice they free your spending. You’ll be able to buy the things you really want because you’re not wasting money.

3. Flexibility Allows For Increased Creativity

Budgets are completely flexible. You can have a simple budget that limits one area of problem spending or you can have a budget that accounts for ALL spending. This flexibility allows for and encourages creativity with your finances. You can create budget categories such as “concert fund” if you enjoy seeing concerts. Freely give and take between categories as you see fit. Eat less expensive food and spend more on knitting supplies? Sounds horrible, but it’s your choice!

2. You’ll Do Better Financially

Blind men make for poor guides.

1. It’s FUN!

Budgets are supposedly a boring hassle, but if you filter all of your purchases through your credit card, as you should, and use a free application like Mint, you won’t need to track expenses or keep receipts because it’s automatically tracked and categorized for you! If it’s this easy, you’re left with a choice of tracking where your money goes or not. Which option is more fun?

In a muddled, no-budget lifestyle, your decisions will be impulsive and emotional because you don’t have the facts. Purchases made this way are much less satisfying and worrisome because you’ll always wonder, “should I be buying this, can I afford it, and how does it affect my other financial goals?”

But budgets give you varying amounts of money for different purposes, all your personal choice. It results in satisfying, calculated purchases. When you buy that big screen TV, you know you can afford it. You can finally watch Seinfeld reruns guilt-free.

Financial Ignorance Scenarios Are Lose/Lose

  • If you’re better off than you believe, you’re worrying for no reason.
  • If you’re worse off than you believe, you’re spending money you don’t have.

Knowing your complete financial picture allows you to enjoy your financial cushion and/or directly address any weaknesses.

Do you budget? Why or why not? Share your experience with budgeting in the comments.

About the Author

I'm lazy, but you can call me Stephen. When you're as lazy as I am, you need superior strategies to live well. My strategies are so effective that I'm productive every single day. As the world tries to figure out how to always stay motivated, I create strategies that don't require it.

Robert

Hey Stephen,

Budgeting is super important. Here in Britain there’s been a drive for introducing financial education into schools so that future generations understand the implications of their financial decisions. I still can’t believe that so many people continue to be ignorant about their finances. I am constantly educating myself about finance and the stock market, and it is also something I am very interested in. Although I don’t budget per se, I do know my expenditures and keep a close eye on what goes in and out of my bank account, so I always know where I’m up to – what I can and can’t afford etc. Hope all is well with you.

Speak soon.

Stephen Guise

Hey Robert,

Money management is the biggest oversight in education today. There are few things more important than knowing how to manage your finances. I hope Britain and the US eventually move towards a standard money management class in high schools.

I’ve been actively investing for 4 years. There’s nothing quite like making money from money. 🙂

It’s good that you keep track of purchases, but budgeting also helps you save towards goals (taking a trip, paying off debt, etc.). I should have included that as the #6 reason, haha.

Matteus Magnusson

I have had a budgeting system for soon 4 years, and its great. I know where all my money goes, and as a student with a somewhat tight budget this helps me see when I can afford some luxury, like eating out or buying a new computer.

I use my own developed system and keep track of every item I buy, meaning I can see all lemons, apples, software, ticket, etc. I have bought, a bit overkill but it only takes half an hour of work every week. Right now, however, the system is crap and not user friendly, but I’m developing a new version that will be done next year.

Stephen Guise

Hi Matteus!

I would love to hear about your new system when you finish it.

david

Hi Stephen, I think I might fall short in this area. I do the same thing that I do in other areas of my life. I never write these things out. I just keep a sort of ‘rough’ overall picture in my mind.

Life seldom conforms to what our goals and budgets are so we always have to be able to foresee (as soon as possible) what is going to effect either and make changes mid stream.

That’s how I look at. Of course, there is absolute value in writing these things down, I just tend not to do it. And that can, occassionally, create problems for me.

Stephen Guise

You should look into mint.com David. You don’t have to write it down! I’m not sure I’d do it if I had to save every receipt and meticulously track everything.

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